published in: Review of Development Economics, 2005, 9 (2), 150-165
We examine the earnings determinants of the self-employed and wage earners in Hungary in
the mid-1990's, taking into account two forms of selection: selection into working or nonworking
for every individual in our sample and selection into self-employment or wageearning
jobs for workers only. Previous studies use switching regression to examine the
returns to individual characteristics taking into account only selection into self-employment or
wage-earning jobs. We find that the estimated returns to individual characteristics when
accounting for both forms of selection differ from estimates correcting for only selection into
self-employment or wage-earning jobs. We also find that the earnings determinants of the
two sectors are not significantly different from each other.
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